The year 2019 ended up being an impressive year for the stock market. If you had told me on December 24, 2018, that within a year we'd be trading above 3,200 in the S&P 500, I would've considered such projections as overly optimistic. One of the last headlines I remember from 2018 described Treasury Secretary Steven Mnuchin calling the banks to have them assure him there was ample liquidity in the markets. Fast forward a year and the S&P 500 ends 2019 with returns just shy of 30%.
Each year I like to reflect on the learning experiences I can take away. What played out as I expected? What do I want to improve on for the next year? Remember: Investing is a marathon and not a sprint.
What played out as I expected?
Frankly, not much of 2019 transpired in the way I thought it might. It was a year when the data didn't seem to align with the movements of the market. The stock market does a very good job of pushing the limits in both directions and taking prices to the extreme.
I've always tried to avoid paying much attention to the news. It may help some people, but to me it's pure distraction. Even though I wasn't actively watching the news, it was next to impossible to avoid hearing the stories day after day. I kept thinking to myself: Is this going to be the breaking point for the market? Yet the market just kept absorbing all the headlines and continued to push higher.
It reminded me of 2017 when North Korea's missile tests had little impact on the market. Likewise, in 2019, news regarding presidential impeachment was shrugged off. The China trade war couldn't even derail the upward trajectory of the market. And news stories about even the possibility of a trade-war resolution actually provided a significant tailwind.
Last year reminded me to stop paying any attention to the news and instead focus solely on price. Price will tell you how the market feels about a news event.
What do I want to improve on for 2020?
Instilling realistic expectations and goals to help clients stick with their plan is one of my main objectives for 2020. It's my contention that emotional decisions ruin portfolios. Investors want to believe they are in it for the long haul, but short-term movements bring out a range of cognitive biases.
With that said, hindsight is a real problem. At one point or another, everyone has hindsight bias and thinks things should have been easy to see in real time. I noticed hindsight to be extremely prevalent in 2019.
We ended 2018 with a panic-stricken market with investors running for the exit. Now that the year has ended on a strong note, in hindsight, everyone thinks it should've been obvious that the market had bottomed on Christmas Eve of 2018 and was going to push higher all year. These biases are extremely detrimental to one's financial goals. Predicting the trends is certainly not as easy as it appears.
Helping clients achieve their individual benchmark and goals by sticking with their written financial plan is my top priority.
Investing is tough
I can't say this enough: Trading and investing are extremely difficult. Some years almost everything makes sense and other years nothing does. The key is to have a predetermined plan instead of emotionally reacting to price movements.
It's become apparent that 2019 was difficult even for some of the greatest investors of all time. I recently watched an interview with Stanley Druckenmiller, who discussed his underperformance in 2019. "I just got into double-digits," he said - and this was in a market that gained almost 30%. The same can be said for others such as Ray Dalio and Warren Buffett.
I don't know Dalio's returns at the end of 2019, but this article earlier in the year talked about performance struggles at his hedge fund, Bridgewater Associates. Warren Buffett's Berkshire Hathaway is a little easier to track. I've included the performance chart in the following image.
Berkshire Hathaway (blue line) returned 10.93%, while the S&P 500 (orange line) returned 28.88%. Most investors would pay a high fee to have these investment giants manage their portfolios. This goes to show that nobody gets it right every year.
I'm sure the previously mentioned investors will make a strong comeback. They stick to their process and some years are better than others. It's just the nature of the game.
Source: Stockcharts.com
Now that 2019 has ended, we can look forward to an exciting 2020. No two years are identical, and each year has its own challenges. But I can all but guarantee the market has a few tricks up its sleeve and will test investors' patience at some point during the year.
Having a written financial plan can help you stay on track during times of market volatility. Regardless of what gains the stock market did or did not give, the financial plan illustrates whether you are still on track to meet your individual goals. It reinforces goals that are unique to you instead of the goals of your peers.
The start of the calendar year is always a good time to review your written plan to keep things fresh in your mind for all possible outcomes that the market may bring. Put 2019 in your rearview mirror and focus on what 2020 has to offer. If you would like to find out more about our unique investment philosophy and financial planning approach, click here.
The indexes mentioned in this communication are unmanaged and not available for direct investment. Past performance is no guarantee of future results. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information contained in this commentary has been obtained from sources that are reliable. This presentation is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.